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Last April, I participated in Dell’s Managed Services launch for SMBs. At the event, Dell had a couple of customers on hand who were both very satisfied with the service. Later in the year, Dell asked my colleague Sanjeev Aggarwal and I to conduct a Dell-sponsored research study to learn more about how Dell Managed Services was working out for a broader group of early customers. This project was very interesting one for me because I’ve been looking at how managed services and cloud computing can benefit SMBs for quite some time.

Dell’s goal for this study was to get a better understanding of why SMBs are turning to managed services and why they chose Dell. Most importantly Dell also wanted to quantify time, cost and productivity benefits that customers are realizing from using Dell Managed Services. For the research, we conducted both in-depth one-on-one interviews with Dell Managed Services customers, and we also fielded a Web-based survey.

Next week, on February 25, I’ll share with you the key highlights about what we learned in our research during a webcast, “How to Solve Your IT Management Dilemma.” During the webcast. I’ll discuss key study findings, including:

The business and IT demands that small and medium businesses are facing.

Why they are turning to managed services.

The measurable results that customers are getting from Dell Managed Services in terms of time and cost savings, and productivity gains.

For example, on average, respondents’ annual downtime decreased by more than 50% after deploying Dell Managed Services, and 89% say the service is freeing up time so that they concentrate resources on more strategic business requirements.

The webcast which will also feature Tom Myers, President, The Myers Group, Inc., one of Dell’s Managed Services customers, talking about his first-hand experience with the service. Jim Roth, Director, Dell Small and Medium Business Services, will provide participants with links to the two research papers that document the findings in detail.

By the way, in my post last year about the service, I also suggested that Dell should come up with something a bit less clunky than “ProManage Managed Services” as the name of this solution—and I’m happy to report that they’ve done this. Based on results from this study, it also looks like Dell Managed Services is helping to lift the IT maintenance and management burden off SMBs’ shoulders, giving them more time to focus on running their businesses.

Last week, former Microsoft VP Dick Brass wrote a very
thought-provoking op-ed in the New York Times entitled Microsoft’s
Creative Destruction which sparked some interesting
commentary from media, industry insiders and observers, and so I
thought I’d toss my two cents into the mix as well. Where should I
begin? Since the dotcom boom, people have been predicting
Microsoft’s doom in almost every market that it’s in, from browsers
to search engines, smartphones to music players. Around 2002
or 2003, when I was an analyst at Summit Strategies, one of our
annual predictions was something along the lines of
“Microsoft–Still Relevant, But No Longer Dominant”. Okay, we
were probably a little ahead of our time. But I think that the
times have now caught up with this prediction, and it sums up
Microsoft’s market position fairly well today. As the Brass article
states, Microsoft’s biggest coup was to make desktop computing and
personal productivity software ubiquitous and affordable. But
in recent years, the company has not been an innovator. Like so
many other companies in our industry, Microsoft has found that it’s
original, game-changing innovation can be a tough act to follow.
Seibel Systems (which invented CRM), Digital Equipment (which
revolutionized the industry with mini-computers) and Wang
Laboratories (which invented word processing) leap to mind. In
each case, the paradigm shifted, but they were exceedingly
reluctant and slow to follow. Seibel didn’t believe customers would
ever buy CRM in a software-as-a-service (SaaS) model, but
eventually launched a SaaS offering after watching Salesforce.com
eat its lunch. Digital and Wang both resisted PCs–in the eyes of
their CEOs, no one would want a PC when they could have a dumb
terminal hooked up to a mini-computer, or a computer that just did
word processing. While I don’t think Microsoft is on a path to
extinction, it is does appear to be suffering from a similar
mindset that led to these dinosaurs’ eventual irrelevance and/or
demise. Over the years, I’ve observed a pattern that when other
companies build better mousetraps, Microsoft often dismisses their
relevance and importance until the market demands that it pay
attention. As a result, it has become more of an imitator than an
innovator, with companies like Google, Apple and Amazon beating it
to market to create the new categories that can really spike
growth. So far, Microsoft’s dominance in the operating system and
desktop productivity markets has funded it’s catch up game in new
areas, and it continues to hold a huge market share advantage in
these spaces. However, as profitable as these areas still are
for Microsoft, competitors are whittling away, even in these
strongholds. Not only are Linux, open source and Apple making
headway, but Google is intent on making the traditional desktop
operating system irrelevant for the average user. I agree with Dick
Brass–Microsoft has a lot of creative, talented people but has
lost much of its original, innovative spark. Is this due to
internal politics and bickering, as Brass contends? It’s probably
best left to Microsoft insiders to determine the exact cause. But
from the outside in, it looks to me like Microsoft needs some
new leadership that will change the current climate and re-orient
the business so that Microsoft can regain its creative edge and
start shaping the future with it’s own innovations.

Technology insiders tend to throw around technical terms and business jargon, assuming people outside the industry understand what it all means. By its nature, technology vocabulary is often confusing and complicated, and insiders often add to the confusion by over-complicating things. To help add a sense of clarity to the confusion, each month, Laurie McCabe, a partner at the SMB Group an dat Hurwitz & Associates, will pick a technology term, explain what it means in plain English, and then discuss why it may be important to you. This month, Laurie takes a look at IT Total Cost of Ownership (TCO).

What is Total Cost of Ownership?

In the IT world, total cost of ownership (TCO) is used to calculate the total cost of purchasing (or in the case of cloud computing, subscribing to) and operating a technology product or service over its useful life. TCO provides a construct to evaluate technology costs that may not be reflected or be apparent in the upfront pricing. For example, if you’re buying a new server, the server (including operating systems, database software and storage) usually accounts for roughly 15 to 25 percent of the overall, long-term costs to install, maintain, upgrade and support the server over time.

Why Should You Care?

Although many companies factor TCO into the purchasing equation, they often underestimate the hidden costs of a new technology solution, which can result in negative consequences. For example, if don’t have the resources you need to adequately maintain a solution, you may skip upgrades and patches required to keep the solution running securely and at peak performance. Or, if you misjudge the time and expense needed to train employees on a new product or service, they may never use it productively.

While TCO helps you to determine hidden costs of a new technology solution, return on investment (ROI) analysis helps to illuminate benefits that may not be readily apparent, such as improved employee productivity or increased customer satisfaction. ROI assessments can be more subjective in nature than TCO, because these indirect benefits are usually harder to measure than direct costs.

When two solutions provide roughly equivalent benefits over the solution lifecycle, but have different types of costs associated with acquisition, maintenance and operation, a TCO comparison gives you a framework to better evaluate competing solutions to a problem, and avoid getting stuck with hidden costs and unwanted surprises.

For instance, a cloud or software-as-a-service (SaaS) customer management solution may provide business benefits very similar to what an in-house customer management solution would provide. However, TCO over a given time period may vary greatly. That’s because the very different business and delivery models and the cost and pricing structures for cloud computing and on-premise solution significantly affect TCO.

For example, on-site solutions usually require significant upfront capital expenditures for hardware, software and application software, along with IT resources to install and configure these components. As a result, first-year costs for on-site solutions are often much higher than those associated with SaaS or cloud computing solutions, and total costs to maintain and manage on-site infrastructure and solutions continue to be a factor over time. On the flip side, TCO analysis may actually favor on-site solutions as the number of users rises and the total time period factored into the calculation increases.

What to Consider

Think about your business and how long you expect to be using a particular solution. In the case of a core business solution, such as accounting or financial, many companies look at a TCO a period of four or five years (generally thought of as the useful life of hardware and software without the need for major replacements).

In less core or strategic areas — which will vary from business to business — you may want to look at TCO over a shorter time period. Regardless, TCO calculations usually include several categories and components, such as:

• Planning and selection: How long will it take to evaluate the solution, the vendor and service level agreements (if applicable)? Consider whether you can try the product for free and/or if you need to invest money or resources to set up a test environment.

• IT infrastructure requirements: For on-site solutions, do you need to buy hardware and software upfront to run the solution? What associated expenses will you have for space, power and cooling? Consider if you will you need to add, shift or outsource IT personnel to manage and maintain the infrastructure, and how much this will cost. For a SaaS or cloud solution, do you need to upgrade or add networking capabilities or bandwidth?

• Application subscription or license costs: What is the per user charge for the license (on-site) solution, or the per user subscription fee (cloud or SaaS solution)? Are ongoing maintenance costs for patches, bug-fixes, upgrades, etc. included in this price or billed separately?

• Application design, configuration and implementation: What resources (internal and/or external) will it take to design and configure the solution so it fits your business needs? Factor in relevant data migration, integration and customization costs, and any system testing necessary.

• Administration and maintenance: For an on-site solution, what is required to transition daily system administration to your internal staff? How much time, resources and money will you need to invest to manage, upgrade, trouble-shoot, patch, etc. over the solution lifecycle?

• Training costs: What IT administrative training and/or end-user costs are involved to get everyone on board and productive in using the solution.

While TCO is very important for most companies, you should also consider other factors — including contract terms, service level agreements, data security requirements and customization and integration needs — just to name a few. Many companies under-invest when it comes to thoroughly evaluating IT solution requirements and options.

By doing a more careful assessment upfront — either with an internal team, or by hiring an independent consulting organization — you will save your company time, money and aggravation down the road.

Did this help you understand total cost of ownership more clearly? Let me know, and send me any additional questions you have on this topic. Also, please send your suggestions for other technology terms and areas that you’d like explained in upcoming columns.